Why Investors Should be Paying Attention to Counterparty (XCP)

With more than 1,500 coins in existence and new ones being pitched every day, it is easy for this space to turn into a repetitive slog where everyone has “the new thing”, but offers only a slight mutation of everything before it. Most of the time, new projects are built on the Ethereum blockchain, so it is a welcome innovation to see a project that uses the Bitcoin blockchain for a change.

This is what Counterparty has done with their project, with their goal being widespread use of smart contracts on top of the Bitcoin platform.

The Counterparty Project

Counterparty was launched in January 2014, which was very early in the game and shows they weren’t just some marketers jumping on the bandwagon. The project was all about making it easier to create custom tokens and run smart contracts, and aimed to do so on top of the Bitcoin blockchain.

By putting the project on top of the Bitcoin blockchain, they hoped to bring some added reliability and security to the process of creating custom tokens. XCP is the proprietary token of the platform. Essentially, XCP tokens are just BTC transactions with some additional information embedded in the transaction data regarding the smart contracts.

Users of the Counterparty protocol are able to create other types of assets, such as bond notes, loyalty rewards, and collectible cards. The platform is basically a “mint on demand” that uses the security of the Bitcoin blockchain.

Structuring Counterparty

One aspect of counterparty that is fairly unique is the structure and how they financed it. Rather than having pre-mined tokens that would give certain stakeholders a pre-existing supply of the token in the form of startup capital, Counterparty chose to go a different route. Additionally, the token cannot be mined and there was no ICO. The idea behind this is that Counterparty becomes a legitimately decentralized platform, because no stakeholders have an unfair advantage or control over the platform, even the founders.

Instead the protocol is designed with a “proof of burn” model, where a certain amount of Bitcoin was sent to an unspendable address, and XCP tokens were created in exchange. These tokens are burned and will never be touched. Even more importantly, XCP acts as “fuel” to smart contracts, and are burned every time an execution step occurs. Therefore, the quantity of XCP is constantly decreasing.

Buying Opportunity

It took 2,130 BTC to create 2.65 million XCP, and the coin is currently ranked as 295th in terms of market capitalization. XCP is tradeable on both Bittrex and Poloniex, but Poloniex is more liquid, as that is where the market makers tend to work.

XCP has been hovering around 0.0006 BTC and 0.0008 BTC for the last few weeks, with a spike occurring on December 10th. Right now seems like the perfect time to jump in and capitalize on this project, especially if you are long on its features (oracle betting, decentralized exchange, order matching, etc.).

Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.